4.3 Different approaches to corporate governance  (Page 8/9)

Stewardship theory

• Managers and employees can be trusted to act as stewards or guardians of the corporation. This means that while they do not own the corporation's resources, they will safeguard these for the owners. A steward is a caretaker who looks after the owner's property and interests when the owner is absent
• This approach definitely makes use of the social approach to human nature. Humans, naturally and spontaneously, realize their innermost natures by forming social unions. The corporation, under this view, is such an organization. While taking on the characteristics of a social contract with the other approaches, especially agency theory, the corporation under the stewardship view is more of a cooperative, collaborative enterprise. Humans can act and find meaning in interests and concerns well beyond the confines of the ego. In fact, to organize the corporation around egoistic assumptions does harm to those capable of action on altruistic motives. The emphasis here is on building trust and social capital to strengthen the social potentialities of human nature.
• Owners still establish the cardinal objectives for the sake of which the corporation exists. But they are also responsible for providing managers with an environment suitable developing human potentialities of forming societies to collaborate in meaningful work.
• Managers act as stewards or caretakers; they act as if they were owners in terms of the care and concern expressed for work rather than merely executors of the interests of others. In other words, the alienation implied in agency theory (acting not out of self but for another), disappears as the managers and employees of the corporation reabsorb the agent function.
• Stewardship approaches are primarily value-based. They (1) identify and formulate common aspirations or values as standards of excellence, (2) develop training programs conducive to the pursuit of excellence, and (3) respond to values "gaps" by providing moral support.

External controls: fining, stock dilution, changing internal governance, court ordered adverse publicity, and community service